Is The Consumer Financial Protection Bureau Too Powerful?

Apr 06, 2011

Republican lawmakers on the House Financial Services Committee introduced a series of bills Wednesday to limit the powers of the Consumer Financial Protection Bureau, which is scheduled to launch on July 21. Elizabeth Warren, Harvard law professor and a vocal consumer advocate, has been appointed by President Obama to set up the agency.

Mandated by Dodd-Frank, the CFPB is housed in the Federal Reserve and is the only regulator whose sole responsibility is the protection of consumer interests. All other securities industry regulators exist to protect and ensure the solvency of financial services firms as well, and so are inherently conflicted when it comes to protecting the interests of consumers.

Republicans have complained that there are not enough checks and balances on the agency’s powers, and that its funding is not subject to the appropriations process. Instead it gets all of its funding directly from the Fed. They have also opposed the bureau’s involvement in a push by federal agencies and state attorneys general to force a number of large banks to make it easier for homeowners to avoid foreclosure and rework their mortgages. The bureau will eventually have authority to set mortgages servicing standards, among other things.

The Republican proposals would replace the CFPB director with a 5-member commission, (HR 1121, Bachus, R-AL), make it easier for other bank regulators to overturn its actions (HR 1315, Duffy, R-WI) and delay the July 21 transfer date of powers to the CFPB until a director is confirmed by the Senate. The House has already passed a bill that would limit the bureau’s budget to $80 million in 2011, down from a stipulated $143 million.

Replacing the director of the agency with a bipartisan panel is not a new idea. The House's original financial reform proposal included this kind of commission, but the final regulatory package accepted the Senate's version, which created a director instead.

Democrats counter that other agencies are managed by a single director with similar powers, including the Office of the Comptroller of the Currency, a bureau that regulates and supervises national banks, the Federal Reserve and the Commodity Futures Trading Comission (CFTC). In addition, like all other agencies, the CFPB is required to follow the standard Administrative Procedures Act for writing rules, the say. A number of other regulatory agencies are also self-funded.

Over at The Atlantic, Daniel Indiviglio points out that, in fact, having rulemaking powers invested in a commission rather than a director is more the norm:

“First, the Fed does have a chair. But its monetary policy is conducted by its Federal Open Market Committee. Other decisions are agreed upon by its Board of Governors. In fact, its chair does not have rulemaking authority. Similarly the CFTC has a commission, so it's a little unclear why Maloney uses it as an example. Finally, the Comptroller of Currency does have the ability to make rules, but when it does so, it generally coordinates with the Federal Deposit Insurance Corporation, Federal Reserve, and OTS. Other regulators also have a commission structure. Some more examples include the Securities and Exchange Commission Federal Trade Commission. So it actually looks like having a commission is the status quo.”

In a statement about the Republican proposals, Americans for Financial Reform, a coalition of more than 250 national and state organizations, urged legislators to reject the proposals. “The American public wants an end to shady business practices, and overwhelmingly supports the CFPB and Wall Street reform. Members of Congress should stand with consumers and reject these proposals to weaken the CFPB.”